Long-Term Rates Hit Low

Now might be a great time to get rid of that floating or short-term, commercial mortgage and trade it in for a long-term fixed rate. Why? Two reasons: 1) long-term (10 year) Treasuries are lower now than they have been since the Fall of 1993; and 2) long-term instruments are yielding the same rates as short-term instruments.

Since commercial mortgage rates (directly or indirectly) are tied to these government rates, this means long-term commercial mortgage rates also are at a low point. Longer-term (5-12 year) rates are no more expensive than short-term or variable rate mortgages.

[1996-98 Short- and Long-Term Yield Curve]

Currently, treasuries (whether they be two year, five year, or ten year) are yielding about 5.42%. With a two percentage point spread (or less) for institutional-grade real estate, 10 year, fixed-rate, commercial mortgages are available at 7.42% or less. One source is quoting the same rate, 6 ⁷/₈%, for one, five, or ten year fixed rates.

For non-institutional commercial real estate, a three percentage point spread above treasuries is typical, so five to seven year, fixed 8.50% rates are widely available.

Steve
Stephen Traub, ASA
Publisher, PVM ^SM

The author, Stephen Traub, ASA, is Chief Commercial Appraiser for Property Valuation Advisors, Newburyport, MA. He is a certified general appraiser in NH, ME and MA. He can be reached at 978-462-4347 or:
by e-mail: straub@shore.net